Lower sugarcane output to hit ethanol blending

Renuka Sugars has started building an inventory of molasses to ensure it doesn't face a shortage

After achieving the five per cent of target for blending ethanol with petrol for the first time after it was mandated, the programme might be hit in the 2016-17 crushing season (starting October 1). This is due to lower availability of molasses, the raw material, following estimates of a sharp decline in sugarcane output.

The three government oil marketing companies (OMCs) have contracted for 1,333.5 million litres of ethanol procurement from cane–backed distilleries. These have to be lifted by November 30. The OMCs’ contracted quantity will suffice for five per cent blending with petrol. The central government has actually made mandatory a 10 per cent level of blending but OMCs lag the target by 50 per cent.

“Cane availability is estimated to decline and crushing will be proportionately lower, with reduced availability of molasses. By the current trend and continued pick-up from industrial alcohol manufacturers, we see India achieving only four per cent ethanol blending in 2016-17,” said Deepak Desai, chief consultant at  ethanolindia.net, a Kolhapur–based consultancy.

If the price of the industrial chemical falls to make import economical, as happened last year, then Indian manufacturers of industrial alcohol would meet their requirement from imports, which will give a cushion to ethanol production, he added.

The industry estimates cane output to decline seven per cent this year, due to erratic rain in major producing regions. “Molasses supply is expected to remain lower this year, proportionate to the decline in cane output. Also, the government withdrew excise duty (of 12.5 per cent or Rs 5 a litre) mid–August on ethanol supply even on the quantity distilleries contracted with OMCs. So, all these are going to impact ethanol supply,” said Abinash Verma, director-general, Indian Sugar Mills Association.

Sugar mills had contracted to supply ethanol to OMCs with excise benefit at a delivery price of Rs 48.5-49.5 a litre. Withdrawal of excise duty would make rectified spirit cheaper for supply to industrial alcohol producers.

Ethanol supply to OMCs might also get affected because of the delay in floating contracts. By this time, normally, OMCs float tenders for ethanol procurement, helping sugar mills to plan their output. Thye’ve delayed doing so; also, industrial alcohol manufacturers pay in advance, as against an over three-month lag in payment by OMCs.

Government data showed the country’s cane sowing at 4.58 million hectares (ha) by September 2, compared to 4.96 mn ha by the same time last year, a decline of nearly eight per cent.

Shree Renuka Sugars, the largest ethanol producer among sugar companies, has started building an inventory of molasses, to ensure it doesn’t face a shortage. The company plans to keep its ethanol supply in 2016-17 similar to 2015-16. “So, the blending ratio might come down this year, on a combination of lower cane availability and prices due to withdrawal of excise duty of Rs 5 a litre,” said Narendra Murkumbi, its managing director.